The stock market faced a setback on Wednesday as traders weighed new inflation data and a preliminary U.S.-China trade agreement. The S&P 500 lost 0.27% to end the day at 6,022.24, snapping a three-day winning streak. The Dow Jones Industrial Average fell 0.5% to 19,615.88, while the Nasdaq Composite shed 1.1 points, closing at 42,865.77.
Inflation data showed that prices increased by 0.1% in May from April, less than the 0.2% estimate from economists polled by Dow Jones. Core CPI, which strips out volatile food and energy prices, also increased 0.1%, less than expected. Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management, said, “Inflation in May was lower than anticipated, suggesting the tariffs aren’t having a large immediate impact because companies have been using existing inventories or slowly adjusting prices due to uncertain demand.”
She added, “As we wait for the 90-day tariff pause to pass, the market will be caught between inflation and job prints.
If inflation stays under control or the job market weakens, the Federal Reserve will likely consider cutting interest rates down the road.”
Discussions between U.S. and Chinese officials have been a key focus this week for investors who remain on edge regarding trade policy. Officials met in London, but said that they will seek approval on the framework from the U.S. and Chinese presidents before implementing it.
Inflation and trade impact markets
As part of the framework, China would approve the exports of rare earth minerals while the U.S. would roll back restrictions on the sale of advanced technology to China. Commerce Secretary Howard Lutnick said Wednesday that U.S. tariffs on Chinese imports from their current levels. President Donald Trump stated that the deal with China is “done, subject to final approval with President Xi and me.” He noted that magnets and “any necessary rare earths” will be supplied up front by China and the U.S. will allow Chinese students to attend U.S. colleges and universities.
U.S. crude oil futures rose more than 4% on Wednesday afternoon on news of escalating tensions in the Middle East. Sources reported that the U.S. is preparing a partial evacuation of its embassy in Iraq due to heightened security risks in the region. In corporate news, Jefferies upgraded J.M. Smucker to buy from hold, while Baird downgraded UnitedHealth Group to a neutral rating.
Lockheed-Martin slumped as much as 7% after the Pentagon cut its request for new F-35 fighter jets in half. The $39 billion 10-year Treasury auction provided some relief to investors worried about global demand for the government asset. The yield of 4.221% came in 7 basis points below the level when issued.
